ZENITH BANK: WHEN SUPERLATIVE NUMBERS BEAT EXPECTATIONS

The determination by management of Zenith Bank to create value, consistent with its desire to deliver satisfactory services to all class of customers in the corporate, retail and investment banking space, has again reflected on the first quarter earnings report released to the investing and banking public during Friday’s trading. This is despite the fact that it came slightly late, compared to the filing date for the 2016 scorecard. 

The bank maintained it quarterly and yearly consistent growth in gross earnings and bottom line to outperform estimates, which was strongly supported by impressive growth in interest and non-interest income to show the strength of asset quality that sustain profitability.  Its treasury and trading income significantly boosted earnings, notwithstanding the huge provision for bad loans during the period.

In absolute numbers, Gross Earnings remained robust to start the 2017 financial year with 48.8%at N147.74bnfrom N99.44bmin 2016, while profit after tax went up by 41.1bnfrom N26.57bnin 2016 to N37.5bn. 

The increased growth in net profit resulted from trading revenue on the back of FX margins from forward transactions, despite the 24.23% increase in operating expenses for the period, with impairment charge for credit losses increasing by a significant 206% and tax for the period rising by 21% to N6.7bn from N5.54bnin 2016. Net assets jumped by 11%to N687.9bn from N621.07bn last year.

Consequently, Earnings per Share for the period went north to 119 kobo, from 85 kobo in 2016, representing a 40% growth, a replica of the price in 3.10x, which is

The growth in top line and flat profit margin is a reflection of management efficiency and robust risk management framework despite macroeconomic challenges that easing off gradually. Meanwhile, the bank’s capital adequacy and liquidity ratio have remained above the regulatory requirement to solidify the bank's fundamentals and reveal its proficient risk management framework that has helped to keep its deposit to Total Loans ratio low at 1.28 in the industry. 

3 MONTHS REPORT
COY	2016	2017
	(N)	(N)	% Chg
Date Released	April 18, 2016	April 28, 2017
Price as@ Released Date	11.45	14.80	29.26
Gross Earnings	99,435,000,000	147,736,000,000	48.57
Profit After Tax	26,573,000,000	37,499,000,000	41.14
Shareholders' Fund	621,073,,000,000	687,858,000,000	11.00
ESTIMATED RATIOS
Earnings Per Share	0.85	1.19	40.00
PE Ratio	3.38	3.10	-8.28
Earnings Yield	7.39	8.07'	9.20
Book Value	19.78	21.91	10.77
Price To Book	0.58	0.68	17.24
ROE (%)	4.28	5.45	27.34
Profit Margin	26.72	25.38	-5.01
Year End	Dec	Dec

 Source: NSE, Company Report and Investdata Research Valuation

We are optimistic about the bank’s performance in FY’17 and expect earnings from the corporate and Investment Banking business to continue to support profit.   Consequently, we project an EPS of N5.20 for full year. Thus,Zenith Bank is fairly priced at N32, with a trailing P/E: 3.10x and Q1 price to book value of 0.68.    Investors with medium and long-term goal, who desire to preserve capital, should look the way of this stock. Its Q1 result upgraded guidance is indicative of strong performance that continues to deliver on expectations. As the bank’s Book Value reveal an under-priced situation at it trades below N21.91, representing 47% discount of its market value.

Technical View 

The bank’s price action for one year has formed a symmetrical triangle that supports continuation or reversal of the current trend, it is trending up within the triangle on a positive sentiment for Q1 impressive numbers. RSI is reading 50.63 and money flow index is looking up to signal that funds are still entering the bank. 

ZENITH INT'L PLC
Share Holding Structure
Jim Ovia	9.38%
Stanbic Nominees Nig. Ltd	16.28%
Nigerian Citizens & Associations	74.34%
Other Statistics
Shares Outstanding (MN)	31,396,493,786
Opening Price (2017)	N14.75
Closing Price at April 27, 2017	N14.80
Date Listed	21/10/2004
Year End	31st Dec.

Source: NSE, Company Report and Investdata Research

The bank’s conservative nature and prudence is paying off in its efforts to build a world-class bank with steady growth in terms of profitability, dividend payout and impacting the economy through its social responsibilities. Also, the bank has demonstrated its doggedness at all levels of operations that have continually supported and driven profit to keep it among the top banks in Africa and in Nigerian, in terms of market capitalisation, earnings, deposit, total assets and net assets.  The bank’s branch networks within and outside the country with professionalism in service delivery at all level have shown in the released financials for the last Four years. Its innovations through the bank ICT platforms have   contributed to making all the figures in green. Investors, on the other hand, have equally followed the outstanding performances of the bank over time, taking strategic positions which continue to reveal value in the bank’s stock in creating wealth as investors smile to the banks on biannual bases.

Similarly, over the years, its Book Value has grown in the same direction from N16.22 in 2013 to N22.44, investor confidence supported its price as valuation tools placed the bank's stock at N30.

ZENITH BANK FOUR YEARS FINANCIAL PERFORMANCE
	2013	2014	2015	2016
Date Released	March 11, 2014	March 05, 2015	March 15, 2016	Feb 27, 2017
Price @ Released Date	21.40	19.00	13.30	14.73
Gross Earnings	351,470,000,000	403,536,000,000	432,343,000,000	507,997,000,000
Profit After Tax	95,318,000,000	99,455,000,000	105,663,000,000	129,652,000,000
Shareholders' Fund	509,251,000,000	552,638,000,000	594,353,000,000	704,465,000,000
Dividend	1.75	1.75	1.80	2.02

Zenith Bank Performance (2013-2016)

Looking at the bank’s performance in the past four years as revealed by the numbers in the table above and below, the figures showed that the bank has consistently, during the period under review, heightened its performance as reflected in its profitability and investment ratios for the period.

Its gross income during the period grew by 44.54% from N351.47bn in 2013 to N507bn, while the earnings power rose by 36.02% to N129.65bn from N95.32bn posted in 2013. Zenith Bank’s performance within the period has supported its share price. Profitability level has remained in an uptrend direction as surprises continue to hit the market, being the first Nigerian bank to record N100bn profit mark. It also ranked number one in net assets and among the top two in terms of profit margin, service delivery and risk management in its industry today.  

Within this period, the risk and cost management of the bank have improved tremendously, leading to enhanced value creation to all its shareholders and other stakeholders. The nature and complexity of the risks in its business requires strong and robust risk management structure to provide adequate oversight at all levels. Earnings per share remained strong and steady at 415 kobo regardless of over regulation in the industry and the unfriendly economic situation till date with high Monetary Policy Rate (MPR), tight liquidity, ascending inflation rate, dwindling discretionary income and falling naira value at the exchange market. 

The EPS rose from 304 kobo in 2013 to 317 kobo in the following year which was sustained in 2015 and 2016, despite the industry headwinds during the years. 

As we have mentioned earlier in this piece, the bank’s 2016 full-year EPS of N4.13 beat analysts and market expectations as rating agencies continued to downgrade Nigerian banks due to the inherent country risk , as a result of contraction in the economy. The improvement in bank’s Earnings Yield from 14.19% in 2013 to 28.03% attests to its quarterly and yearly earnings growth.

ZENITH BANK- ESTIMATED RATIOS
	2013	2014	2015	2015
Earnings Per Share	3.04	3.17	3.37	4.13
PE Ratio	7.05	6.00	3.95	3.57
Earnings Yield (%)	14.19	16.67	25.30	28.03
Book Value	16.22	17.60	18.93	22.44
ROE (%)	19.00	18.00	17.78	18.40
Profit Margin (%)	27.12	24.66	24.43	25.52
Year End	Dec	Dec	Dec	Dec